Mutual Funds may have to keep PMS biz separate

ASSET management companies (AMCs) that provide portfolio management services may soon have to maintain a “Chinese wall” between the two businesses, by ensuring that there is no conflict of interest.

Capital market regulator the Securities and Exchange Board of India (Sebi) has proposed to review its mutual fund (MF) regulation that allows asset management companies to carry out other businesses, such as portfolio management service (PMS). Some of the leading fund houses provide the portfolio management service under the same umbrella by sharing infrastructure facilities.

The reasoning within Sebi about this proposal is that investment decisions in the MF business should not be shared with its portfolio management segment. Sebi fears that the AMC might priortise the portfolio management business over the MF business as the fund house is allowed to fix remuneration to distributors according to the services provided.

The issue is expected to be discussed when the regulator’s advisory committee on mutual funds meets on Monday.

The meeting will also discuss whether the Real Estate Investment Trust proposal should be continued or withdrawn or merged with Real Estate MFs. Besides, the committee that has representatives from the industry, law firms and investor associations, is likely to discuss the fungibility of expenses.

Fund houses now charge about 2.5% of the assets under management of the schemes as fund management fees annually . This fee typically covers management fees, operating expenses and trail ommissions. The regulator may consider providing flexibility to fund houses to charge management fees which is currently capped at 1.3% within the fund management fees.

Besides the total expense ratio the regulator has also proposed an enhanced performance measurement disclosure. Although the industry body Amfi, has put in place a lot of methods of disclosures, the regulator may be looking at having uniform dates across all funds that would help retail investors better understand the performance about their MF investments, said a person faimiliar with the development.

At present, schemes end in different periods for all the fund houses. Sebi is also looking at having an institutionalised way of doing the distribution, wherein fund houses will have to supervise the distributors. Besides, the regulator may also ban fund houses from selling equity options.

Source: http://economictimes.indiatimes.com/Mutual-Funds-may-have-to-keep-PMS-biz-separate/articleshow/5992904.cms

Mutual funds may have to disclose derivatives exposure

Mutual funds may have to provide more disclosures regarding investment in equity derivatives, though they would still be allowed to take exposure to these instruments.

The Securities and Exchange Board of India (Sebi) mutual fund advisory committee, which met on Monday to discuss on various issues, has proposed mutual fund houses be more transparent.

“The disclosure requirements have been made more consistent and uniform for all mutual fund houses. As such they are not aggressive participants but take exposure only for hedging purposes, hence they have not been restricted from investing in these instruments” a source familiar with the development told DNA Money.

There were certain apprehensions regarding MF exposure to equity derivatives and that they may be banned from selling options. The selling of options is a risky affair and can lead to unlimited losses if the bets go wrong.

The committee also discussed changes to regulation with regards to mutual funds keeping their portfolio management services (PMS) activities separate. Some asset management companies (AMCs) also provide PMS, and utilise the same infrastructure facilities.

“There needs to be streamlining of the activities and a separate committee would be set up to look into the same though these are initial stages” said the source.

The other main issue on the committee’s agenda was limiting distribution expenses and providing flexibility to MFs to levy fund management charges. However, the committee could not arrive at a decision.

The structure of mutual fund expenses, which AMCs charge customers, stays put for the moment. “The situation remains status quo on the fund management charges” said the source.

The committee, comprising industry and Sebi representatives, was to discuss various ways to charge MF expenses. Currently, MFs charge about 2.25-2.5% of assets under management of the scheme as fund management charges annually, which typically covers management fees (1.25%) and operational, promotional or distributional expenses.

The regulator had proposed to provide flexibility to AMCs by removing the sub-limits on various categories of expenses if the overall cap on total expense ratio is lowered to 1.5% from current 2.25-2.5%.

Source: http://www.dnaindia.com/money/report_mutual-funds-may-have-to-disclose-derivatives-exposure_1390368

Mukesh Ambani may buy MF firm

With JM mutual find valued at 8% of assets under management, Ambani would have to pay around Rs685 crore

Mukesh Ambani, who controls India’s most valuable company Reliance Industries Ltd (RIL), is in talks to buy a majority stake in JM Financial Asset Management Pvt. Ltd, his first attempt to enter Anil Ambani’s territory since the estranged brothers scrapped a “non-compete” agreement between them a week ago.

Negotiations are under way for a deal that values JM Financial Asset Management, the money manager controlled by investment banker Nimesh Kampani, at around 8% of its assets under management, which equals Rs685 crore, said two officials close to the development who didn’t want to be named.

If the acquisition goes through at that valuation, it would be one of the biggest in India’s mutual fund industry.

JM Financial manages assets worth Rs8,569 crore in a total of 27 investment plans.

The non-compete agreement, which was torn up in a move towards possible reconciliation between the brothers, had prevented Mukesh and Anil Ambani from entering each other’s businesses.

Anil Ambani controls Reliance Capital Asset Management Ltd, the country’s largest money manager.

The acquisition of JM Financial will give Mukesh Ambani, 53, a direct licence to enter the mutual fund industry, which has Rs7.7 trillion worth of assets under management.

“As a policy, we do not comment on speculation,” a spokesperson at Reliance Industries said in response to a query from Mint.

Nimesh Kampani’s son Vishal Kampani also termed it “speculation”.

“JM Financial mutual fund forms an important part in the JM Financial group portfolio and we remain focused and committed towards growing this business,” he said over the phone.

Vishal Kampani, who was holding the position of a director in the asset management firm, resigned from his position on 12 March. On 14 March, the fund house informed investors of his resignation.

Bhanu Katoch, chief executive officer of JM Financial Asset Management, also called news of the attempted acquisition speculative in reply to an email from Mint.

JM Financial mutual fund, a part of the Nimesh Kampani-controlled JM Financial group, is one of the country’s first asset managers.

It started operations in December 1994 with the launch of three funds—JM Liquid Fund (now JM Income Fund), JM Equity Fund and JM Balanced Fund.

The non-compete agreement between the Mukesh Ambani company and Reliance Anil Dhirubhai Ambani Group (R-Adag) had restrained the elder brother from venturing into the potentially lucrative financial services space.

Reliance Capital, a part of R-Adag, is engaged in asset management, life and general insurance, consumer finance and other capital market-related businesses.

Reliance Capital Asset Management is the largest mutual fund in the country with assets worth Rs1.11 trillion.

The talks with Mukesh Ambani follow three years after Nimesh Kampani sold his 49% stake in the joint venture investment banking company JM Morgan Stanley Securities Pvt. Ltd to Morgan Stanley for $445 million (Rs2,069.25 crore as of today). “If a partner does not want to be with you, one has to move on,” Nimesh Kampani said then.

JM Financial Asset Management is a loss-making entity in the otherwise profitable JM Financial group. Last year, the money manager made a loss of Rs5 crore.

Under its star fund manager Sandip Sabharwal, JM Financial Asset Management made most of its investments when the stock market was nearing its peak.

Sabharwal, who was known for his aggressive style of investment, has since left the fund.

JM Financial has been on the lookout for a buyer for a couple of months now, said one of the two officials mentioned above.

JM Financial would help its new owner get a decent headstart in the mutual fund business, given that it has a near-full suite of products besides a licence, althoughit hasn’t invested much inexpanding outside the top eight cities, the person said.

People familiar with the situation said JM Financial had earlier talked with the Indiabulls group, which has an asset management licence but has not commenced business for over a year.

But Gagan Banga, chief executive officer of India-bulls, denied they had been in talks.

“We are assessing the regulatory changes and its impact on the industry. We would wait for things to settle down before taking a call on this,” he said.

Valuations typically depend on the portfolio of products held by the asset manager. The higher the equity assets, higher would be the valuation, because companies earn more commission income from the sales and management of equity funds compared with debt funds.

Traditionally, such deals have been struck at 3-4% of the assets under management.

In January, US-based asset management firm T. Rowe Price Global Investment Services Ltd bought a 26% stake in UTI Asset Management Co. Pvt. Ltd for $140 million, around 3.25% of its average assets under management.

Valuation of asset managers plunged after the market decline of 2008.

In July 2009, Nomura Asset Management Co. Ltd bought a 35% stake in LIC Mutual Fund Asset Management Co. Ltd at 2.4% of its total assets.

In September, the financial services unit of engineering firm Larsen and Toubro Ltd announced plans to buy DBS Cholamandalam Asset Management Ltd for Rs45 crore, valuing the firm at about 1.6% of assets under management.

Following the market plunge in 2008, the assets under management of JM Financial had dipped to Rs3,758 crore in March 2009, of which Rs1,480 crore was in equity, before increasing last year when the market recovered.

Source: http://www.livemint.com/2010/05/30233553/Mukesh-Ambani-may-buy-MF-firm.html

LIC Mutual ties up with Nomura for fund management

Life Insurance Corporation of India Mutual Fund (LIC MF) and Nomura Asset Management Company of Japan are entering into a joint venture for adoption of better technology and management of funds.

The approval from the regulatory authorities has been obtained and completion of other formalities isunder process, according to Mr Ravi Chaudary, Chief Marketing Officer, LIC MF.

Addressing the press, after inaugurating the new area office of LIC MF here on Wednesday, he said that the Fund enjoyed a market share of 5.66 per cent and was in the 6 {+t} {+h} position in the country with funds under management to the tune of Rs 42,303.96 crore, spread across 27 products, as at the end of March 2010.

The year on growth has been 83.19 per cent, much higher than the industry growth at 51.6 per cent, he said.

The awareness level about the advantages of the mutual fund is still to spread and LIC MF has taken seriously the education of investors, conducting the programmes in vernacular languages in different parts of the country, to reach out especially the small and medium investors, he further said.

Currently, there are 26 Area offices and 4 more would be coming up shortly. There are plans to open 100 business centres.

A Web site is also to be launched shortly.

Source: http://www.thehindubusinessline.com/2010/05/29/stories/2010052952661300.htm

Equity Index Funds Gain More than Equity Diversified Funds

Equity Fund categories were able to deliver positive returns over the one week period ended 28 May 2010, despite facing losses during the previous week. Equity Diversified fund category gained 1.55%, Tax Savings funds rose 1.64% and Index funds climbed 2.56%. Equity index fund category has delivered better returns than the equity diversified fund category over the one week ended 28 May 2010. Among sector funds, Infotech Funds category was the biggest gainer by 2.74%, followed by FMCG Funds by 2.35%, Auto Fund by 1.79%, Pharma Funds by 1.46%, Banking Funds by 1.30%, Telecom Fund by 0.18% and Media Fund by 0.07%.

Among the sub categories in the debt fund category, Floating Rate Income Funds – Short Term & Long Term and Ultra Short Term Funds gained 0.09% each, Liquid Funds and Short Term Income Funds surged 0.08% and 0.05% over the week end period. While Gilt – Medium & Long Term, Gilt – Short Term and Income Funds lost 0.26%, 0.08% and 0.07%.

The BSE Sensex rose 417.45 points or 2.54% to 16863.06. The S&P CNX Nifty gained 135.40 points or 2.75% to 5066.55.

Major buying was seen in Realty, which gained 4.15%, followed by Oil (3.42%), Power (3.26%), IT (3.06%) and FMCG (2.97%) and Tech (2.30%). However, Consumer Durables dropped 2.15%.

Mid-cap stocks moved up 1.01%, to 6756.01 during the week end period. While the small-cap shares rose 0.94%, to 8494.45 during the week end period. Mid-Cap and Small-Cap index underperformed the Sensex and Nifty.

Equity Diversified Funds

Equity Diversified Fund category gained 1.55% over one week period ended 28 May 2010. This category was able to come out of the losses it incurred during the previous week. Among the schemes in the equity diversified category, Taurus Ethical Fund gained the maximum of 3.47%, followed by JM Equity Fund which climbed 3.17%, HDFC Growth Fund rose 2.84%, ICICI Pru Target Returns Fund & IDFC Enterprise Equity Fund - A jumped 2.75% each among others. Tata Growing Economies Infrastructure – Plan A and Sundaram BNP Paribas Entertainment Opportunities were the worst performers in this category, losing 2.76% and 0.71% respectively.

Tax Savings Funds

Tax savings Funds category gained 1.64% over one week period as on 28 May 2010. This category moved into the positive territory after witnessing loss of 3.18% during the previous week end period. HDFC Long Term Advantage Fund and JPMorgan India Tax Advantage Fund were the top performers with a return of 2.61% and 2.59% respectively during one week period. Among the other schemes in the category, Axis Tax Saver Fund rose 2.54%, Birla Sun Life Tax Plan climbed 2.50% and ICICI Pru Tax Plan surged 2.20% among others. JM Tax Gain Fund and Edelweiss ELSS Fund ended as the worst performers in this category with a return of 0.24% and 0.70% respectively over one week period.

Index Funds

The Index Fund category gained 2.56%, over one week period ended 28 May 2010. All the schemes in this category gained during the week end period, compared with a loss during the previous week end period. HDFC Index Fund-Nifty Plan was the highest gainer in this category as its NAV appreciated by 2.80%. JM Nifty Plus Fund and ICICI Pru Index Fund-Nifty Plan were the next highest gainers by 2.79% and 2.77%. Among the other schemes in the category, SBI Magnum Index Fund climbed 2.75%, LICMF Index Fund – Nifty Plan & UTI-Nifty Index Fund surged 2.74% each and Franklin India Index Fund-NSE Nifty Plan added 2.72%. IDBI Nifty Index Fund and HDFC Index Fund-Sensex Plus Plan were the worst performers in this category as they witnessed a gain of only 1.72% and 2.02% respectively.

Sector Funds

Pharma Funds category gained 1.46% over one week period ended 28 May 2010. All the schemes in this category gained, while Reliance Pharma Fund ending as the top performer with 1.86%.

Bank Funds category gained 1.30% over one week period ended 28 May 2010. ICICI Pru Banking & Financial Services Fund rose 1.77% and Religare Banking Fund climbed 1.73%.

FMCG Funds category rose 2.35% over one week period ended 28 May 2010. SBI Magnum SFU – FMCG Fund was the top performer in this category. In terms of NAV performance, the fund's NAV gained 3.27% over the one week period.

Infotech Funds category rose 2.74% over one week period ended 28 May 2010. ICICI Pru Technology Fund was the top performer in this category. In terms of NAV performance, the fund's NAV gained 3.63% over the one week period.

Hybrid Funds

Among the sub categories in the hybrid fund category, Asset Allocation Balanced Funds surged 1.25%, Equity Oriented Balanced Fund by 1.20%, Debt Oriented Balanced Fund by 0.43%, Monthly Income Plans by 0.22% and Arbitrage Funds by 0.12% during the one week period ended 28 May 2010.

UTI-Variable Investment Scheme and SBI Magnum NRI Investment Fund-Flexi Asset gained 1.61% and 0.89% respectively under asset allocation balanced fund category.

All the schemes in the equity oriented balanced fund category gained during the week end period. HDFC Children's Gift Fund-Investment Plan was the highest gainer in this category as its NAV appreciated by 1.98%. Sundaram BNP Paribas Balanced Fund was the next highest gainer by 1.97%. Among the other schemes in the category, Escorts Balanced Fund climbed 1.93%, HDFC Balanced Fund surged 1.90% and ING Balanced Fund added 1.65%.

LICMF Children's Fund was the highest gainer in debt oriented balanced fund category as its NAV appreciated by 1.46%. UTI Unit Linked Insurance Plan was the next highest gainer by 0.71%. Among the other schemes in the category, UTI-Retirement Benefit Pension Plan climbed 0.70%, Tata Young Citizens Fund surged 0.65% and Templeton India Pension Plan added 0.57%. SBI Magnum Children Benefit Plan and DWS Money Plus Advantage Fund were the losers in this category by 0.23% and 0.03%.

Exchange Traded Funds (ETFs)

Gold ETF category gained 1.63% during the week end period. SBI Gold Exchange Traded Fund was the only scheme in this category to gain by 1.61%, while the other schemes in this category gained by 1.63%.

The other ETF category gained 1.73% during the week ended 28 May 2010. Shariah BeES, Nifty BeES and Kotak Nifty ETF were the top performers by 2.98% each. The only debt ETF i.e. Liquid BeES witnessed gained of 0.06%. PSU Bank BeES & Kotak PSU Bank ETF lost 0.07% each during the week end period and ended as the worst performers in this category.

Source: http://www.apollosindhoori.cmlinks.com/MutualFund/MFSnapShot.aspx?opt=9&SecId=10&SubSecId=22,24

Sensex to Hit Record on Profits for DSP BlackRock

S. Naganath, who has beaten 99 percent of his mutual fund peers in India, says the fastest profit growth in three years and unprecedented spending on roads and ports will drive the country’s benchmark stock index to a record high in the first half of 2011.

“At every dip, we’re a buyer,” Naganath, chief executive officer at DSP BlackRock Investment Managers Pvt, which manages $7 billion in assets, said in an interview in Mumbai today. “If the market falls, then we’ll seek to deploy our cash.”

India’s benchmark stock gauge on May 25 fell more than 10 percent from its recent peak as investors withdrew funds as the European crisis eroded confidence. Still, the gauge today completed its best week in 12 after Tata Motors Ltd., the owner of Jaguar Land Rover, posted profit that exceeded analysts’ estimates.

Trading will be “choppy” in the next six months amid concern Europe’s debt crisis may worsen, said Naganath, 45. Foreign funds sold $2.3 billion of Indian stocks in May, on course for the worst month since October 2008, following the collapse of Lehman Brothers Holdings Inc.

Return to Highs

“As the earnings upgrades come through as currently estimated, this market has the potential to get to the highs that we last saw in early 2008,” Naganath said. The DSP BlackRock Micro Cap Fund has returned 92 percent, compared with a 51 percent gain in the BSE Small-Cap Index, in the past year.

The benchmark Bombay Stock Exchange Sensitive Index, or Sensex, would have to gain about 25 percent to reach its record set on Jan. 8, 2008. The nation doubled its target for infrastructure spending to $1 trillion in the five years starting 2012 to narrow the gap with China. India’s economy is also accelerating as rising incomes boost demand for cars, mobile phones and air travel.

India’s biggest companies are expected to post an average 25 percent gain in profits in the year ending March 2011, and a further 20 percent in the following year, Naganath said.

Birla Sun Life Asset Management Co., India’s fifth-largest money manager with almost $17 billion in assets, plans to boost stock holdings to as much as 30 percent from 20 percent now, Chief Executive Officer A. Balasubramanian said on May 26.

‘Sweet Spot’

“India is in a sweet spot now,” Balasubramanian said.

“The economy remains insulated from Greece and corporate earnings will maintain a high growth rate. So the correction in stocks is an opportunity for long-term investors.”

India’s small and mid-cap companies will lead a rebound in stocks this year as investors seek out values to tap on the nation’s economic growth, Seth Freeman, chief executive officer at San Francisco-based EM Capital Management LLC said today in a Bloomberg Television interview. Freeman said he’s “overweight” on financial services companies because the banking industry is “a proxy for overall growth in the country.” He also likes technology companies as demand for their services is expected to increase, he said.

The Sensex index of the largest 30 companies is trading at 16.3 times estimated profit, the highest in Asia excluding Japan. It’s also the most expensive among the four BRIC markets, which also include China, Brazil and Russia.

Outpace China

CLSA Asia Pacific Markets’s Christopher Wood, the second- ranked Asia strategist in Institutional Investor magazine’s annual poll, said May 18 he expects India to outpace China’s growth in the next five years with the new developments. Indian equities also have the most attractive outlook in Asia this year, Wood said.

India’s economic growth may accelerate to about 8.5 percent in the year ending March 31, Finance Minister Pranab Mukherjee has forecast. That would be the fastest pace since fiscal 2008.

Source: http://www.businessweek.com/news/2010-05-28/sensex-to-hit-record-on-profits-for-dsp-blackrock-update2-.html

Sundaram Finance not to enter banking or exit MF business

City-based Sundaram Finance group Friday ruled out entering the banking sector and said it will continue with the mutual fund business with or without a partner.

'Converting Sundaram Finance Ltd into a bank provides no advantage. At this level Sundaram Finance can compete with many private banks,' Managing Director T.T. Srinivasaraghavan told reporters here.

'We will be in mutual fund business with or without a partner.'

Asked about market rumours that the group is exiting its non-life insurance joint venture, Royal Sundaram Alliance Company, he said: 'In respect of the insurance, the situation has not arisen for us to take a final call'.

Sundaram Finance has two joint ventures - mutual fund and home finance - with BNP Paribas.

The mutual fund joint venture is under spotlight as BNP Paribas acquired Fortis business outside the Netherlands.

As per Indian regulations, no one can have two mutual fund companies and as such BNP Paribas has to decide between Fortis Mutual Fund and Sundaram BNP Paribas Asset Management Company.

'There are three options for us - buy out BNP Paribas' stakes in the mutual fund business; merge Fortis Mutual Fund with us or selling out our stakes in the mutual fund business. The last one does not arise,' Srinivasaraghavan told IANS.

Asked whether Sundaram Finance will be open to buying out BNP Paribas' stakes in both the joint ventures and run the business independently, he said: 'There is no issue with the home finance venture. The partnership with BNP Paribas has been good till now. But we are committed to mutual fund business.'

He said discussions are on and in a month's time a final decision will be taken.

About the rumours that Royal Sundaram Alliance is on the block, he said: 'We have not spoken to anybody about selling our stakes. I can't say that about our partner - RSA, UK. A stage has not been reached where we have to take a call to be present or exit the insurance business.'

Meanwhile, Sundaram Finance, a player in the commercial vehicle and car finance segments, closed fiscal 2009-10 with a revenue of Rs.1,181 crore and net profit of Rs.226 crore.

The company board has recommended a final dividend of 40 percent.

Source: http://sify.com/finance/sundaram-finance-not-to-enter-banking-or-exit-mf-business-news-default-kf2tEehegfc.html

Sebi wants more checks on MF expenses

The Securities and Exchange Board of India (Sebi) is preparing ground for a fresh set of mutual fund (MF) reforms to make the instrument more transparent and attractive for investors.

The MF advisory committee, comprising industry and Sebi representatives, is due to meet on Monday to discuss the proposals.

For a start, the regulator wants fund houses to keep promotional expenses, such as those on foreign trips and gifts to distributors, outside the ambit of the expense ratio. This ratio — it includes fees paid to fund managers, advertising, legal, record-keeping and accounting costs, custodial charges and taxes — is capped at six per cent for a scheme. In most cases, fund houses keep the expense ratio around 2.5 per cent, but include promotional costs in the calculation.

Sources familiar with the development said the regulator suspected that many costs passed off as advertising or promotional expenses were in reality paid to distributors for pushing sales.

The move comes when Sebi has been embroiled in a battle with the insurance regulator, Irda, for control over unit-linked insurance plans, seen as a rival to MF schemes. By reforming the commission structure for these schemes, the market regulator has put pressure on the insurance sector to opt for reforms.

Clearer performance measures

In addition, at the Monday meeting, the regulator would want to put in place a more investor-friendly performance review mechanism. At present, apart from the daily net asset value, fund houses put out monthly fact-sheets which provide mathematical calculations comparing and evaluating the schemes on offer. The regulator feels retail investors find this form of review complicated. Instead, it wants MFs to provide specific quantitative parameters for one to be able to judge the performance of a scheme.

The advisory committee is also to discuss issues like guidelines for MF investments in equity derivatives. This has become a contentious issue. Some members feel fund houses should not be allowed to invest in risky instruments like stock derivatives.

However, if a complete ban was not possible, there should be some specific guidelines, said an industry source.

The committee, whose earlier meeting was in November, was also likely to look at the issue of conflict of interest among trustees, asset management companys (AMCs) and managements of fund houses, sources said. The issue was discussed earlier and it was noted that there was an overlap in membership of these entities.

Sebi had addressed the issue by ordering that AMCs, trustees and managements should have different sets of individuals. The sources said the regulator wanted to ensure that no gaps remained in the regulations.

In the recent past, Sebi has used the MF advisory panel to usher in a lot of changes, such as in the entry and exit load structure, put in place last August.

Source: http://www.business-standard.com/india/storypage.php?autono=396301